xt7jsx64628f https://exploreuk.uky.edu/dips/xt7jsx64628f/data/mets.xml   Kentucky Agricultural Experiment Station. 1957 journals 060 English Lexington : Agricultural Experiment Station, University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Progress report (Kentucky Agricultural Experiment Station) n.60 text Progress report (Kentucky Agricultural Experiment Station) n.60 1957 2014 true xt7jsx64628f section xt7jsx64628f Progress Report 60 April 1957
`   A General Picture of
K Commercial Agriculture in  
  Eastern Kentucky
By HARALD R. JENSEN and LUTHER KELLER
Department of Agricultural Economics
  mag
AGRICULTURAL EXPERIMENT STATION
UNIVERSITY OF KENTUCKY
’ LEXINGTON

 A GENERAL PICTURE OF COMMERCIAL AGRICULTURE
IN EASTERN KENTUCKY}.!
By Harald Jensen and Luther Keller ’
. . . . 2/
ByCensus definition, Eastern Kentucky has few commercial farms.-
For the area as a whole, in 1950 only 28 percent of the farms were com-
mercial. The data for each of the state'sEconomic Areas, however, reveal
that there were considerably more commercial farms in Area VIII than in IX. ,
In Economic Area VIII, 47 percent of the farms were classified as commer- ·
cial while only 81 percent of those in Area IX were commercial. Thus, most
of the farms in Eastern Kentucky were classified either as part-time or resi- {
dential farms. Therefore, when we look at commercial agriculture in Eastern ,
Kentucky we are viewing only about one —fourth of the farms, which have less
than one—half of the acres of land in farms but which contribute almost 80 per-
cent of the total value of farm product sales.
Our main purpose here is to describe the commercial agriculture of
Eastern Kentucky. We might accomplish this task by describing the average I
or typical commercial farm in this area; but since broad averages always
cover up much useful information, a clearer picture can be attained by des-
cribing the commercial farms by size groups.
The Census divides commercial farms into six classes on the basis of
total value of products sold. These classes are as follows:
Class ` Value of farm products sold
I $25, 000 or more .
II 10, 000 to 24, 999 _
III 5,000 to 9,999
IV 2, 500 to 4, 999
V 1,2.00 to 2,499
VI 250 to 1, 199
1/ Eastern Kentucky is here defined to include Economic Areas VIII and IX
as defined by the United States Census of Agriculture, 1950 and as illustrated
on the cover page.
2/ According to the United States Census, 1950, all farms that sold $1,200 or
more of farm products were classified as commercial. In addition, farms
with farm product sales of $250 - $1, 199 were classified as commercial pro-
vided that the farm operator worked off the farm less than 100 days and that
" the income of the farm operator and his family from nonfarm sources was less
than the total value of farm products sold.

 -3.-
i· We shall present the picture of commerci.a1 agriculture in Eastern
_, Kentucky by comparing incomes, costs, investments, resource and product
combinations for the various classes or sizes of farms.i/ Since the Census
V data showed very few Class 1. farms in Eastern Kentucky, this report will
deal withthe other five classes of farms.
Incomes and Costs
i According to the 1950 Census, most of the commercial farms i.n Eastern
. Kentucky (56 percent) fell into Class VI with sales of only $250 to $1, 199
(last two colurnns, Table 1)., Class V farms, with sales of $1,200-$2,,499, had
1 32 percent, while Class lll farms (sales of $2, 500--$4, 999) had about 9 percent.
’ Thus, about 97 percent of all commercial farms in Eastern Kentucky had farm
product sales of less than $5, 000 which leaves only 3 percent with sales of
$5, 000 or more., With this general background, let us take a closer look at
incomes and costs on these farms of varying size (Table 2).
~ The income or value of total product figures (line 1) includes the value
of all farm products sold as well as the value of those used i.n the home.,2/
These incomes, ranging from $1, 070 on Class V1 farms to $15,189 on C-1_assll
farms, have importance only as they are related to inputs or costs. When we
observe this relationship we can readily see that farm farnilies on most com-
_ mercial farms in Eastern Kentucky were not getting much income for the time
spent in farming.
_ lnputs are high relative to incomes
· The total input figures (line 2) include both out-of-pocket and overhead
v costs, Total inputs ranged from $1, 777 on Class VI farms (farms with 1n—
comes of $1, 070) to $18, 281 on Class ll farms (farms with incomes of
$15, 189)., lncomes increased faster than inputs up to Class lV farms, wh;il.e
beyond Class lll farms , inputs increased faster than incomes . Larger units
are generally expected to be able to operate morte efficiently than smaller
Y units, since the larger ones can spread their fixed or overhead costs over
. ., more acres and animals. With existing resources and farming patterns,
this type of gain for larger units apparently does not extend beyond Class IV
farms in Eastern Kentucky.
1 1./ The figures for each class are, of course, averages for all farms falling (
Gito a particular class., Hence, our presentation too, deals with averages,
lncomes, costs, etc. ,, for individual farms witlcin a class, no doubt, deviate
considerably from the average. Net incomes on some farms will be higher,
others lower than the average. However, our presentation yields more in-
formation than a study based on over—all averages for all classes.
2/ The rental value of the home, however, has not been included.

 -4-
Table 1. - The Number of Commercial Farms by Size Classes,
Economic Areas 8 and 9, Kentucky, 1949 (Source: U. S. Census and Estimates) I
`Q
Class Acres Total Total inputs Number Percent Farms
of Per Gross Sales Capital Used during of in Each
Farms Farm Invested Year Farms Class
I 631 $25,000 and over $102, 532 $53, 282 ,7 -·--I _l_/ V
II 597 10,000 - 24,999 50,908 18,281 67 —-» 2/
III 266 5,000 - 9,999 27, 650 7,446 360 2
IV 188 2,500 - 4,999 13,535 3,930 1439 9 ‘
V 126 1, 200 - 2,499 7, 845 2,576 5076 32
VI 86 250 - 1, 199 4, 133 1,777 8855 56 l
_1/ Less than 0.5 of 1 percent _A,
Table 2. — Income and Costs for Commercial Farms in Economic Areas 8 and 9, Kentucky, 1949.
(Source: U. S. Census and Fstimates)
 
Classof Farm 1/ VI V N HI II Average j/
1. Total product $1, 070 $2, 153 $3, 771 $7, 151 $15, 189 $1, 880
2. Total inputs 1, 777 2, 576 3, 930 7,446 18, 281 2, 453
a. Cash farm
expenses 2/ 180 439 1, 000 2, 832 9, 625 450
b. Interest on building
and livestock 116 261 482 946 1, 945 225
c. Interest on land 110 183 297 558 1,030 169
d. Depeciation on ·
buildings and machinery 93 244 467 929 1, 973 204
e. Labor costs 2/ 1,279 1,450 1,685 2,110 3,703 1,406 '
3. Income above cash ‘
farm expenses 890 1,714 2, 771 4,319 5,564 1,430
4. Residual to labor 571 1, 026 1, 525 1, 886 616 832
5. Residual to management -708 -424 -160 -224 -3, 087 -574
2/ Class I farms have been omitted from the analysis since the small number of farms (7) in this class may
cause the data for this class to be unreliable. , _
2/ Includes all cash farm operating costs except hired labor costs.
2/ Includes operator, family and hired labor.
g/ The average values in this column and in subsequent tables include those for all commercial farms in the
area including Class Ifarms,
All size groups failed to show any returns to management
Total inputs (Table 2) were broken down to show the amounts for cash
farm expenses; interest on buildings, machinery and livestock; interest on

 - 5-
i land; depreciation on buildings and machinery; and labor costs. Of all
K the inputs included here, actually only farm expenses and hired labor cost
involved a cash outlay. A C hél l' ge for operator and family labor and the
interest on investment were included as inputs to show how net farm in-
_ come compares with the returns which could be realized were the operator
, to put all his capital (land included) out at the going rate of interest and to
{ hire out all his labor.
U Before interest, depreciation and labor inputs are subtracted, all size
· groups had some income, which ranged from $890 on Class VI farms to $5, 564
on Class ll farms (Table 2.), These figures indicate that all size groups were
2 able to pay "cash farm expenses" (such items as machine hire and repair,
fuel 'and oil, seeds, fertilizer, and feed, livestock and poultry purchases) and
have sornething left over for interest, depreciation and labor charges.
Likewise, before labor inputs were subtracted (but after all other inputs
have been subtracted) all size groups had some income. As indicated by
— "residual to labor, " these arnounts ranged from $571 on Class VI farms to
$1, 886 on Class lil farms (Table 2.). These amounts represent what is left
as payment to- labor and management.
T After labor and all other input items except management were subtracted,
none of the groups showed a profit or a positive return to management. Class
Vl farms had a negative, return of $708; they were short that much after paying
' cash farm expenses plus reasonable charges for labor and capital investment.
. Class IV farms were short only $160, while Class ll farms lacked $3, 087.
Figure 1 shows graphically these shortages. Here the ratio of the value of the
` total product to the value of the total input is plotted against the value of the _
_ total inputs for the five classes of farms. A ratio of l. O on the vertical axis
represents the break-even point or where the value of the total product is
exactly equal to the value of the total input. Thus, the horizontal line drawn
at l. 0 has special significance. All farms below this line show a loss.
Y In Table 2 all the groups of farms show negative management returns.
— · All of the groups are also below the horizontal line at l. 0 (Fig., 1). The fact that
these farms show losses does not mean they are going into debt or that the
families on them are starving. It d o e   mean that they failed to make
cash farm expenses together with the conservative wage ($947 per mature
worker) and investment costs which were charged against their labor and
y capital. l/ lf the farm families on commercial farms in Eastern Kentucky
were entirely motivated by profit they would transfer their labor and capital
into employment other than farming. ;/ Economically the losses on these
l/ The   axierage wage for hired farm labor in Kentucky, 1949.
;/ Of course, money income and the goods and services it will buy are only
one of the goals which make up the complex of family satisfactions.

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‘ Table 4. - Resource and Product Ratios for Productivity of Land, Labor, and Capital
. Economic Areas 8 and 9, Kenmcky, 1949 (Source: U. S. Census and Estimates)
 
` Class of Farms VI V IV HI II Average
Number of workers
l (man years of all labor) 1.35 1.53 1.78 2.,23 3.91 1.48
Residual to labor per worker $423 $671 $857 $846 $158 $562
Acres per worker 64 82 106 119 153 77
Total investment per worker 1/ $3,061 $5,127 $7,603 $12,399 $13,020 $4,722
. Land and capital
inputs per worker 2/ 370 737 1262 2361 3727 708
Total product _
er worker 793 1 407 2 119 3 207 3 885 1 270
l 1/ Includes investment in land, buildings, livestock and machinery.
2/ These are the annual inputs not the investments themselves, and include cash farm expenses, interest on
land, buildings, machinery and livestock, together with depreciation on buildings and machinery.
Increases in gross returns from additions of land and capital continue
n throughout, from Class V1 to Class II farms (total product per worker,
· Fig. 4). The total product per worker increased from $793 on Class VI farms
to $3, 885 on Class ll farms. At the same time, land and capital inputs per
worker increased from $370 to $3, 727. Note that the rate of increase in total
product per worker fell off as land and capital inputs per worker increased.
· One would expect this rate of increase to fall off since the farm operator on
V a Class II farm had a more difficult job of managing $3, 727 per worker in
other resources than the operator on Class VI farms who managed only $370
per worker in other resources.